OPINION: BP hands off Prudhoe Bay to a hungry wolf in Hilcorp
A hungry wolf runs faster, and that means Prudhoe Bay should be in good hands with Hilcorp.
The long-rumored blockbuster deal finally announced on Aug. 27 marks a historic transition for the largest North American oil field ever discovered as pioneering Alaska producer BP is exiting the state in a $5.6 billion asset sale.
BP leaves huge shoes to fill, not only from its 60-year presence on the North Slope where it has helped produce more than 13 billion barrels of oil to far exceed the original estimates of less than 10 billion, but also from its community presence of active employees and millions upon millions in charitable donations.
Hilcorp was named No. 20 on Fortune’s Best Places to Work in 2015, one of many such lists it regularly appears upon (although one can wonder how a company that paid all of its 1,400 employees $100,000 bonuses that year could possibly not be No. 1).
There will no doubt be transition and turmoil for BP’s employees and the thousands of jobs tied to contractors, suppliers and the indirect impacts of its payroll across Alaska.
But ultimately it must be kept in mind that this was inevitable and despite the unraveled recent mantra from BP about “40 more years” in Alaska, the company is handing off an asset it has spent the past several years revitalizing from years of annual decline averaging around 5 percent or more.
BP Alaska President Janet Weiss shaved her long locks in early 2018 after losing a friendly bet with her employees that they could hold production from Prudhoe Bay steady, which they did over three straight years from 2015-17 at about 280,000 barrels per day thanks to record amounts of drilling and well workovers even as prices sank to as little as $26 per barrel in early 2016.
Whether in anticipation of this sale or not, BP conducted a 400-square mile seismic shoot over the entirety of the Prudhoe Bay field this past winter and the results must have been encouraging enough to cement Hilcorp’s and its financiers’ willingness to execute the biggest transaction in Alaska’s history.
BP personnel have stated they believe there is another billion barrels of recoverable oil at Prudhoe Bay and they praised Hilcorp’s ability to squeeze more oil out of aging fields as demonstrated at assets the Houston-based company acquired from BP in 2014.
That capability not only impressed BP, but it had to have earned the trust of fellow Prudhoe Bay working interest owners ConocoPhillips and ExxonMobil, who would have had to sign off on a transaction that makes Hilcorp the operator and guardian of their still large financial interests on the North Slope.
Southcentral Alaska can also thank Hilcorp for turning around the aging and neglected assets of Marathon and Chevron after it entered the state with its first purchases back in 2012. That was not long after the Cook Inlet Recovery Act passed the Legislature unanimously in 2010 amid widespread fears of looming natural gas shortages, and should remind us that the tax credit incentive programs the state enacted with diminishing production both on the Slope and the Inlet worked despite the fact they came under fire and were ended during the recent budget deficits.
Hilcorp drew unwanted attention for a natural gas leak in 2017 from an old Cook Inlet pipeline cracked by a rolling boulder, but it should have earned more praise for spending $90 million to build a new subsea oil transportation system long sought by environmental groups and the Regional Citizens’ Advisory Council to drastically reduce tanker traffic and mothball the oil storage farm in the shadow of the Mt. Redoubt volcano on the west side of the Inlet.
The purchase of Prudhoe and the rest of BP’s assets brings Hilcorp’s total investment in the state to about $10 billion over the past seven years, and it stands to spend billions more to recoup those investments including building the offshore Liberty project that could add 70,000 barrels per day to the pipeline it now owns half of.
With ConocoPhillips and Oil Search also in the midst of permitting massive projects with six-figure per day production estimates and multi-billion dollar price tags, this should also serve as a red flag to those who would like nothing more than to raise taxes by a billion or more per year.
Now is not the time to shoot the wolves just as they are hunting the state’s dinner.
Andrew Jensen can be reached at [email protected].